CF_Chapter 15:

Slide 4:
Straight voting: directors are elected one at a time; each time, the
number of votes is not cumulated.
Cumulative voting: all directors are elected at one time; the number of
votes each shareholder can cast can be cumulated: = number of shares
the shareholder holds x the number of directors up for election.
Staggered voting: only a fraction of directors is up for election at a
particular time.
E.g. Peter has 20 shares, 4 directors are up for election.
With straight voting, Peter can cast the maximum of ? votes for each
director.
With cumulative voting, Peter can cast the maximum of ? votes for one
director because all directors are elected at the same time and votes
can be cumulated.

To guarantee that you get a seat on the Board of directors, you need
to have at least:
- Straight voting: (50% x number of shares outstanding) + 1 share
- Cumulative voting: [1/(N+1)] x number of shares outstanding + 1
share
N: the number of directors up for election
E.g. A company has 10,000 shares outstanding; 3 directors are up for
election. What’s the minimum number of shares you need to have to
guarantee that you get a seat on the Board of directors?
Straight voting:
Cumulative voting:

Slide 4:
- Proxy voting: When shareholders are absent at the meeting, they
grant the right to vote their shares to someone else.
- Classes of stock: Google has 2 classes of common stock:
 Class A: 1 share has 1 vote; class A is held by the public.
Class B: 1 share has 10 votes; class B is held by founders and
insiders  maintain the control of the company.
- Preemptive right (Rights offering): issue the rights to buy new
shares to existing shareholders to help them avoid ownership
dilution.

Slide 5:
Similarities between preferred stock and debt:
- Stated dividend
- Stated liquidating value
- Sometimes can be converted to common stock
Differences between preferred stock and debt:
- Preferred stock has no maturity date
- Dividends are not tax deductible
- Dividends are not the obligation of the company

Slide 7:
Sinking fund: an account managed by the bond trustee and used to
repay the bonds. Each year, the company transfers money to sinking
fund to retire the bonds.
Call provision: allows the issuing company to repurchase (buy back) the
bond any time prior to maturity at a specified price.
Protective covenant:
- Negative covenant: prohibits some actions, e.g., limits the amount
of dividends a company can pay.
- Positive covenant: specifies an action that the company needs to
take, e.g., requires the company to maintain a minimum level of
working capital.

Slide 16:
Example: Which one of the following is the Eurobond, which one is
the foreign bond?
1/ A French company issues a bond denominated in U.S. dollar to the
U.S. bond market (foreign bonds)
2/ A Japanese company issues a bond denominated in Japanese yen to
the bond markets in China, Mexico, Brazil, Canada, the U.S., Korea, etc.
(eurobonds)

Question 1:
Straight voting: ( 50 % × 850000 ) +1=425001 shares
 It cost: $ 43 × 425001=$ 18,275,043
Cummulative voting: [ 1
( 7+ 1 ) ]
×850,000 +1=106251 shares

 It cost: $ 43 ×106251=$ 4,568,793